JBS CEO Gets Congressional Letter Re: Paying Ransom

Will Fed alter its interest-rate hike timeline in Wednesday FOMC statement?

In Today’s Digital Newspaper

Market Focus:
• Wednesday is key day for investors waiting on FOMC statement, presser
• G7 confab ends with Biden getting good reviews, mixed results
• Bitcoin nears $40,000 after Elon Musk suggests Tesla will resume crypto payments
• Rebound in U.S. domestic shipping picks up steam
• Weather: Heat wave in western and central U.S. will be record-breaking
• Extreme conditions in West more widespread than any point in at least 20 years
• Lake Meade recently hit its lowest level since 1937
• CFTC report focus
• Ag demand update
• Pressure to start the week for corn, soy and wheat
• Just erratic rains expected for the Northern Plains and Midwest next two weeks
• Monsoon already covers 66% of India
• Strong finish for cattle complex Friday
• Pork and cash hog prices fell at week’s end

Policy Focus:
• White House releases agenda of upcoming regulatory actions
• Biden admin. officials working to disrupt the criminal ecosystem re: ransomware
• JBS CEO gets a congressional letter re: paying ransom
• Anxiety about revised WOTUS rule

Energy & Climate Change:
• Japan planning to shift big chunk of its power to hydrogen

Coronavirus Update:
• Novavax vaccine 90.4% effective in preventing symptomatic Covid-19 in a large trial
• Pace of U.S. vaccinations has slowed
• Judge: Texas hospital system can require its employees to be vaccinated

Politics & Elections:
• New law bumps Nevada ahead of Iowa, New Hampshire in presidential contest line
• Netanyahu out, Bennett in: Israel has a new prime minister

Congress:
• Congress has sights on big tech, antitrust activity

Other Items of Note:
• Texas GOP Gov. Abbott: Will build wall with Mexico
• Doggone… Wasabi, a Pekingese, won best in show at the Westminster dog show
 

MARKET FOCUS

Equities today: Global stock markets were mixed but mostly higher overnight. U.S. stock indexes are pointed toward slightly higher openings. Investor focus is on the conclusion this Wednesday of the FOMC meeting and what may be said about inflation and a potential change in interest rate hike timing. Economists expect the so-called dot plot to point to an interest-rate increase in 2023, while the bank is unlikely to signal a scaling back of bond purchases until later this year.

     U.S. equities Friday: The Dow finished up 13.36 points, 0.04%, at 34.479.60. The Nasdaq was up 49.09 points, 0.35%, at 14,069.42. The S&P 500 rose 8.26 points, 0.19%, at 4,247.44.

     For the week, the benchmark 10-year Treasury yield dropped to as low as 1.43% on Friday before finishing flat at 1.46%, still its lowest level in three months and down nearly 12 basis points this week. The major stock market averages posted a mixed showing, with the Nasdaq up 1.9% for its fourth straight weekly gain, the S&P 500 eking out a 0.4% gain, and the Dow falling 0.8% for the week.

On tap today:

     •  Bank of England Gov. Andrew Bailey speaks at a virtual Association of Corporate Treasurers conference and International Treasury Week event. (9 a.m. ET)
     • European Central Bank board member Isabel Schnabel speaks at an online symposium on climate change, finance and green growth. (9 a.m. ET)

     • USDA Grain Export Inspections report, 11 a.m. ET
     • USDA Crop Progress report, 4:00 p.m. ET
     • U.S. Secretary of Homeland Security Alejandro Mayorkas visits Mexico, one week after officially rescinding the Trump administration’s policy which allowed border officials to make U.S.-bound asylum seekers wait in Mexico while their case is adjudicated in the United States. Meanwhile, USAID Administrator Samantha Power travels to Honduras, El Salvador, and Guatemala.

Biden and other Western leaders concluded the G7 summit with a joint declaration criticizing the Chinese and Russian governments. Biden is attending his first NATO summit as president today. The communique outlined plans to counter Chinese influence in the developing world through its Belt and Road Initiative but stopped short of naming China in a section on forced labor. The leaders also vowed to donate a billion doses of Covid-19 vaccines to poorer countries over the next year and to end government subsidies for foreign coal projects. They also expressed support for a 15% minimum tax on large multinationals.

     “The only way we’re going to meet global threats is working together,” Biden said at a news conference before he was to fly to London to visit Queen Elizabeth II at Windsor Castle. “The United States is going to do our part. America is back at the table. America is back at the table.” He said he was encouraged by the “sense of enthusiasm” from the other leaders of G7 nations — Britain, Canada, France, Germany, Japan and Italy — to the U.S. being “fully engaged” with the other large democracies.

     “I think we’re in a contest, not with China per se, but a contest with autocrats, autocratic governments around the world, as to whether or not democracies can compete with them in a rapidly changing 21st century,” he said. “And I think how we act, whether we pull together as democracies, is going to determine whether our grandkids look back 15 years from now and say, ‘Did they step up? Are democracies as relevant and powerful as they have been?’”

     A G7 communique released Sunday (link) at the conclusion of meetings featured a section on China, emphasizing the group’s shared commitment to responding to “China’s non-market policies and practices which undermine the fair and transparent operation of the global economy.” It included an explicit rebuke of human rights abuses, “calling on China to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong enshrined in the Sino-British Joint Declaration and the Basic Law.” Biden had pushed to include stronger language on China’s forced labor practices, especially in the agricultural, solar and garment sectors. The leaders of Germany, Japan and the European Commission, because of their economic ties to China, were reluctant to be so explicit. The White House, eager to demonstrate Biden’s leadership on the issue of China, pointed out that the G7 communique three years ago hadn’t mentioned China. Asked if he had hoped to convince allies to go further with their language rebuking China, Biden told reporters he was “satisfied” with the final version. “There’s plenty of action on China,” he said.

     Bottom line: Most analysts are giving Biden good G7 reviews. As for the overall G7 confab, it ended with a renewed focus on China. Biden rallied allies to push back more forcefully against Beijing and Moscow. But the New York Times and others note that cracks emerged in the group, including a failure to agree on ending the use of coal and a lack of concrete steps to ban Western participation in forced labor in China. However, G7 leaders vowed to phase out gas and diesel cars and shut down coal plants that do not apply emissions-capturing technology as soon as possible. They also promised to protect 30% of the planet's land and oceans by 2030. On an interesting note, NATO, which includes many G7 nations, are set to agree on a climate action plan today that would make their armed forces carbon-neutral by 2050.

Market perspectives:

     • Outside markets: The U.S. dollar index is slightly weaker ahead of U.S. trading with moderate gains in the euro and yen versus the U.S. currency. The yield on the 10-year U.S. Treasury note is firmer, trading around 1.46%, tracking a firmer tone in global government bond yields. Gold and silver futures are under pressure in electronic trading, with gold under $1,858 per troy ounce and silver under $27.80 per troy ounce.

     • Crude oil futures remain elevated ahead of U.S. trading with U.S. crude trading around $71.25 per barrel and Brent around $73.10 per troy ounce. Crude hit fresh 32-month highs in Asian action, with U.S. crude trading at $71.21 per troy ounce and Brent at $73.04 per troy ounce.

     • Bitcoin nears $40,000 after Elon Musk suggests Tesla will resume crypto payments. Musk said he'll allow it when there's proof of about 50% of clean mining energy usage. Some estimates place the use of renewables in Bitcoin mining at nearly 75%, while others put it at closer to 39%. Meanwhile, the WSJ notes (link) that because bitcoin and other digital assets are considered “indefinite-lived intangible assets,” rather than currencies, any decrease in their value below what the company paid for them — even a temporary one — can force a company to write down the value and take an impairment charge. The volatile nature of bitcoin makes quarterly revaluations routine.

     • Rebound in U.S. domestic shipping picks up steam as the Cass Freight Index jumps 7.7% from April to May and moves ahead of pre-pandemic levels for the first time. The 1.269 reading from Cass Information Systems was a record 35.3% up on the pandemic-hit level the year before. The gain signals the recovery "is progressing much faster than the recovery from the Great Recession," Cass says, boosting by retailers restocking depleted inventories. Freight expenditures soared 49.9% against a year-ago level that marked "the easiest comparison of the pandemic quarantine period," but the spending index was off 2.6% from April to May.

     • Weather outlook: Thunderstorms are possible in the East and could be severe in the Mid-Atlantic region today... ...A heat wave in the western and central U.S. will be record-breaking this workweek, and lead to fire danger...

     • Extreme conditions in the West are more widespread than at any point in at least 20 years, according to the U.S. Drought Monitor. California is now in its dry season and is unlikely to see significant rainfall again until October. “There’s a 100% chance that it gets worse before it gets better,” Dr. Daniel Swain, a climate scientist at the University of California, Los Angele, told the New York Times (link). “We have the whole long, dry summer to get through.” Parts of Northern and Central California are turning to water restrictions as the drought rapidly alters the landscape. More than 40 of California’s 58 counties are now under a drought state of emergency. Many farmers in the Central Valley have declared the outlook for the year to be grim. So far, Southern California’s water supply has not been hit as hard by the drought.

     Lake Meade, the largest human-made reservoir in the U.S., recently hit its lowest level since 1937, following years of decline. The water level dropped to about 1,072 feet above sea level. The lake’s optimal water level is between 1,180 feet and 1,220 feet, according to the National Park Service.

        A WHITE “bathtub ring” shows the long-term effect of drought at Lake Mead, the largest reservoir in the U.S. The water level dropped to about 1,072 feet Wednesday — a low not seen since it was filled in the 1930s. (Luis Sinco Los Angeles Times)

• Ag demand: Ethiopia canceled an international tender to buy around 400,000 MT of milling wheat.

     • CFTC Commitments of Traders report focus (source: Barron’s):

Items in Pro Farmer's First Thing Today include:

     • Pressure to start the week for corn, soy and wheat
     • Just erratic rains expected for the Northern Plains and Midwest next two weeks
     • Monsoon already covers 66% of India
     • Strong finish for cattle complex Friday
     • Pork and cash hog prices fell at week’s end

POLICY FOCUS

— On Friday, the White House released an agenda of its upcoming regulatory actions, which indicated that Biden plans to "repeal or replace" the Trump administration's rule opening roughly 9 million acres of Alaska's Tongass National Forest to construction and logging, one of its most significant conservation rollbacks.  Link to agenda. Link to USDA agenda. Another key finding: USDA is considering putting put the Animal and Plant Health Inspection Service in charge of assessing whether biotech animals would be susceptible to pests or diseases or have the ability to transmit them. USDA’s Food Safety and Inspection Service would conduct a pre-slaughter food safety assessment to ensure that the meat would be safe.  Link to EPA agenda. Link to Energy Dept. agenda. Link to Transportation Dept. agenda.

— Senior Biden administration officials say they are working to disrupt the criminal ecosystem that helps support the booming ransomware industry. The FBI says that many of the types of ransomware it is investigating trace to Russia, some with ties to Russian government security services. Hospitals have emerged as particularly vulnerable because they often have lax cybersecurity controls. Hacks in recent months have suspended surgeries, delayed medical care and cost hospitals millions of dollars.

     The White House said it was pushing to better trace payments and to create consistent rules among international partners for how to trace them. A proposed Treasury Department rule would require U.S. banks to report cryptocurrency transactions over $10,000 and vet some customers. On June 3, the Justice Dept. announced it would prioritize ransomware prosecutions. The Justice Dept. recently formed a Ransomware and Digital Extortion Task Force, the body that revealed it had recovered some of the funds extorted from Colonial Pipeline. Hackers shut down 5,500 miles of fuel pipe for nearly a week, causing fuel station supply shortages throughout the country and driving up prices. Colonial ultimately paid 75 Bitcoin (~$4.4 million at the time) to its tormentors. The U.S. unit recovered $2.3 million worth of Bitcoin that Colonial paid to ransomware extortionists. The funds had been sent to DarkSide, a ransomware-as-a-service syndicate that disbanded after a May 14 farewell message to affiliates saying its Internet servers and cryptocurrency stash were seized by unknown law enforcement entities. According to an analysis published May 18 by cryptocurrency security firm Elliptic, 47 cybercrime victims paid DarkSide a total of $90 million in Bitcoin, putting the average ransom payment of DarkSide victims at just shy of $2 million.

     Some are urging Congress (or more accurately taxpayers) to aid victims by establishing a fund to help them recover their systems if they have acted in good faith via best practices. Supporters of this say to be eligible, companies should have to report any attack to authorities, refuse to pay a ransom and demonstrate they adhered to federal cybersecurity improvements.

     JBS CEO gets a congressional letter re: paying ransom. House Oversight Committee Chairwoman Rep. Carolyn Maloney (D- NY) sent a letter late Thursday to Andre Nogueira, CEO of meat processor JBS USA, seeking documents and communications related to the May 30 ransomware attack against the company, as well as the $11 million payment that JBS ultimately made to the attackers a few days later. That includes communications with the cybercriminals; Maloney writes that paying them could risk similar attacks in the future, and Congress needs more information to consider legislation. A JBS spokesman says the company will comply with the request.

— Revised WOTUS rule comments: EPA Administrator Michael Regan said in a statement last week that the Trump administration's rollback of various water and wetlands protections is "leading to significant environmental degradation," and that the EPA will work with the Army Corps of Engineers to create new rules protecting ecosystems and providing safe drinking water. The announcement quickly brought accusations from Republicans that the Biden administration wants to reinstate Obama-era clean water rules, and potentially burden industries such as construction and agriculture in the process.

• WSJ: “EPA is preparing a private land grab that will limit farming, fracking, home building and economic activity… President Biden wants Congress to shovel out hundreds of billions of dollars for infrastructure, which the EPA then will tie up in a permitting morass — unless, of course, the projects advance climate or social-justice goals. Republicans shouldn’t agree to any infrastructure deal that doesn’t include permitting and regulatory efficiencies.”
   

ENERGY & CLIMATE CHANGE

— Japan is planning to shift a big chunk of its power to hydrogen, in one of the world’s biggest bets on an energy source long dismissed as too costly and inefficient to be realistic. The change is a vital piece of the country’s plan to eliminate carbon emissions in 30 years. Japan’s industrial powerhouses are building ships, gas terminals and other infrastructure to make hydrogen a big part of everyday life. If its plan succeeds, it could lay the groundwork for a global supply chain that would further sideline oil and coal.

CORONAVIRUS UPDATE

— Summary: Global cases of Covid-19 are at 176,001,664 with 3,805,014 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 33,462,286 with 599,769 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 309,322,545 doses administered, 149,921,222 have been fully vaccinated, or 43.8% of the total U.S. population.

— Novavax said its vaccine was 90.4% effective in preventing symptomatic Covid-19 in a large trial and worked well against newer strains such as the alpha variant.

— The pace of U.S. vaccinations has slowed, and a substantial share of Americans — close to one third — remains hesitant about getting a shot. These unvaccinated Americans will remain vulnerable to Covid outbreaks and to serious symptoms, or even death. “We are vulnerable,” Dr. Kavita Patel of the Brookings Institution told Yahoo News. On Twitter yesterday, Dr. Robert Wachter of the University of California, San Francisco, wrote: “I’ll now bet we’ll see significant (incl. many hospitalizations/deaths) surges this fall in low-vaccine populations due to combo of seasonality, Delta’s nastiness, & ‘back to normal’ behavior.”

— A Texas hospital system can require its employees to be vaccinated against Covid-19, a federal judge said. U.S. District Judge Lynn N. Hughes’s Saturday ruling is the first time a federal court has weighed in on the legality of such an employer mandate due to the pandemic. The lawsuit, brought by more than 100 of the Houston Methodist system’s 26,000 workers, claimed the requirement unlawfully forced them to be human “guinea pigs.” Judge Hughes said that the lawsuit’s legal assertions misinterpreted the law.
 

POLITICS & ELECTIONS

— New law bumps Nevada ahead of Iowa, New Hampshire in presidential contest line for 2024, but slot not official yet. Nevada Democratic Gov. Steve Sisolak on Friday signed a law that would make Nevada the first state to vote in the 2024 presidential primary contests, bumping Iowa and New Hampshire from their leadoff spots. It is expected to set off maneuvering by other states, especially Iowa and New Hampshire, to move up their contests. The national political parties would need to agree to changes in the calendar, or state parties could risk losing their delegates at presidential nominating conventions. The Democratic National Committee has not yet signaled whether it would support the calendar shake-up and isn’t expected to start writing rules for its 2024 nominating process until next year. Republicans in four early presidential nominating states jointly opposed the move last week, saying they’re committed to preserving the historical schedule. Before Joe Biden went on to win his party’s nomination, he performed poorly in Iowa’s caucuses and New Hampshire’s primary. In Nevada, with a much more racially diverse population that mirrors the U.S. as a whole, he finished second to Sen. Bernie Sanders (I-Vt.).

— Netanyahu out, Bennett in: Israel has a new prime minister. Naftali Bennett is the new prime minister of Israel after a 60-59 vote on Sunday ended Benjamin Netanyahu's 12-year run at the helm. Bennett, a far-right politician, made his mark by taking relatively extreme positions on the Palestinian conflict. He has vowed to do "everything" in his power to block Palestinian statehood and supports annexing 60% of the West Bank. He will serve as prime minister for the next two years and then centrist Yair Lapid will take the position for the following two. Bennett hailed President Biden as a partner but said it would be a “mistake” for the U.S. to renew the Iran nuclear deal. Biden spoke for two hours with Bennett almost immediately after his swearing in, where the two agreed to “consult closely” on Iran according to a White House readout. (Photo: NYT) 

CONGRESS  

— Congress has its sights on big tech, antitrust activity. There is a clear uptick in antitrust activity by Democratic and Republican officials at the state and federal levels. Competition policy needs an update, many of them say, especially for big technology firms. A bipartisan group of House lawmakers introduced five major antitrust bills on Friday, all aimed at restraining Big Tech. It’s very murky as to whether any of them will pass, but the bipartisan nature of the push gives some of the proposals a chance. The measures would make it easier to break up businesses, create new hurdles for mergers and give antitrust enforcers more funds to police companies.

     Developments at the state level include:

• The New York Senate passed legislation that would significantly alter the definition of market dominance and introduce a 60-day premerger notification requirement for many deals, the first of its kind at the state level. The notice period could have “severe timing consequences” for deals, wrote lawyers at White & Case.
• The Republican attorney general of Ohio, Dave Yost, filed a novel lawsuit seeking to declare Google a “common carrier” — a public utility subject to government regulation like the railroads of yore. If it’s successful, Google could no longer prioritize its own products, services and websites in search results.

OTHER ITEMS OF NOTE     

— Texas GOP Gov. Abbott: Will build wall with Mexico. Gov. Greg Abbott (R-Texas) said the state would build a border wall with Mexico. It is murky as to whether the state has the authority to build a wall in an attempt to deter immigrants. Abbott said he expected to announce more details about the wall this week. Abbott explained that he would start by setting up barriers to identify people trying to cross the border and by deploying additional law enforcement agents to assist the Border Patrol. He has blamed the increase in migrant crossings on President Joe Biden’s unwinding of former President Donald Trump’s restrictive border rules. “It is out of control and a change is needed,” he said. “Some of these border barriers will be built immediately.”

— Doggone… Wasabi, a Pekingese, won best in show at the Westminster dog show.

    
     Wasabi is a tiny dog “that feels like he’s 10 feet tall,” a judge at the Westminster dog show said.Karsten Moran for the New York Times